You could be forgiven if you are feeling a sense of déjà vu. Five
and a half years after the adoption of the UCITS III amendments, here we are
again - talking about possible further improvements to European fund law. But
let's be honest : continued attention to the European legislative framework for
this business is essential.

First, the growing importance of this sector. Over the last decade,
investment funds have come from nowhere to become one of the core pillars of our
financial system. The UCITS market now comprises more than 30,000 funds managing
over €5 trillion – circa 50% of EU GDP. The sector is not just
direct sales of fund units, but also a key component in other investment
products - unit linked life insurance and private pension products.

Second, we are back wrestling with UCITS law because asset management is in
massive flux. Commercial horizons of market participants are broadening.
Business models being reinvented. Risk parameters changing. The single market
framework must accommodate these changes. Foster competition and efficiency on a
continental scale. The UCITS Directive is struggling to keep pace.

So getting the EU framework right is crucial. But delicate. We want to
nurture a successful European fund industry. Keep it at the cutting edge of
financial innovation. In the vanguard of global competition. True to the needs
of the traditional retail investor base. All this within the constraints of a
complex EU policy-making process. The task is not easy.

As you see we are proceeding carefully and systematically. Tackling the
implementation failures that have undermined the effectiveness of the UCITS
passport. Rooting out the bad administrative practices that have hindered cross
border marketing of UCITS.

Working in close partnership with people on the ground – market
participants and competent authorities. Consulting widely. Listening to the
European Parliament. Continuing to work openly with all interested parties as we
move ahead.

That is why we are here today. To hear first reactions from all interested
parties to the three industry reports on retail investment funds, hedge funds
and private equity funds.

Before going further, let me correct any misunderstanding on the status of
these reports. These reports express industry views and recommendations on how
the European regulatory environment can be improved. They do not bind the
Commission. I will take all views into account. And I want to hear from
consumers.

I would like to salute the three sets of experts. They have brought clear and
fresh insights to many challenging issues. And they will be an important input
to our thinking as we prepare the November White Paper on improving the single
market for investment funds. So let me give you some preliminary thoughts from
my side.

I. Report of the Expert Group on Hedge Funds

Let’s start with hedge funds. This is the first opportunity that the EU
hedge fund industry has had to express its views on the commercial and
regulatory challenges. Their first plea is for an objective, fact-based debate.

The group describes how the regulatory patchwork in Europe is hampering the
development of a scalable onshore business. European hedge fund managers are not
always able to choose service or liquidity providers from across Europe. The
Group argues that, if the European Union wishes to be home to a successful hedge
fund business, it must tackle these frictions. But any remedial action should
stop short of introducing hedge-fund specific initiatives.

What about the most hotly debated recommendation concerning the marketing of
hedge fund investments to the mass market?

The recommendations represent a departure from existing national approaches
to controlling retail exposure to hedge fund investing. We need to study this
carefully. There are two issues which need scrutiny:

First, whether the MiFiD Directive is compatible with the interpretation that
underpins the expert group report. This is not cut-and-dried and is currently
the object of careful legal analysis by my services;

Second – more fundamentally – whether retail access to hedge fund
investments on the recommended terms would be desirable. Let's be realistic: If
part of the industry wishes to make hedge fund investing available to the mass
market there will be close regulatory engagement. The hedge fund industry cannot
expect to have red-carpet access to the mass market while the rest of the fund
industry is subject to strict regulatory controls.

These are some of the thorniest problems facing European financial
regulators. Expect no rush to quick judgement. The Commission and national
authorities will need reassurance that the recommendations represent a viable
and secure basis for broadening investor access; that they do not have
unintended consequences for the broader investment fund market. However, we
recognize these issues are here. Hedge funds are now an established feature of
the European financial market. And finding their way into the portfolios of
affluent investors. We will have to work towards some kind of resolution.

II. Report of the Expert Group on Private Equity

A successful private equity industry can make a critical contribution to
economic growth by nurturing new enterprises and re-energising existing
companies. In so doing, it can lay the seeds for sustained growth and
job-creation. This report makes a compelling case for cultivating Europe’s
growing private equity business.

If the EU is to build on recent progress, many Member States and at the EU
level need to understand better the way in which the private equity industry is
organised. Not always the case in the past. We must be sure that cross-cutting
financial and company law does not generate unintended consequences for the
private equity industry.

Member States regulate part or all of the private equity value chain. But,
Europe's national regimes do not interlink. The industry is internationalizing.
The cross border dimension of this business could be significantly enhanced if a
number of legal and tax barriers were tackled.

The first set of issues concerns fund structuring. Cross-border
capital-raising is hampered by failure to recognise partner country funds as
fiscally transparent. The second set of issues concerns the cross-border
placement of private equity funds:The Group calls for a common
private placement regime to provide a safe harbour for private equity managers
and qualified investors to negotiate freely, without handholding by the local
supervisors.

Proposed solutions build on the concepts of mutual recognition of existing
national laws and fund structures – rather than new harmonising measures.
There is no need to super-impose European harmonising measures on the industry.
What is needed is to free the industry from punitive double taxation and legal
uncertainty that currently hold back onshore business – to the advantage
of offshore structures.

Most answers are in the hands of the Member States. This is true, in
particular, with regard to the fiscal barriers cited in the report. A lot of
lip-service has been paid over the years to addressing Europe's failure to
develop financing for unlisted companies. This report gives Member States a
chance to turn rhetoric into action. If Member States are prepared to make small
adjustments to their tax and regulatory systems, they can promote European
private equity clusters. A significant step forward. This segment has been
singled out for particular attention by the Finnish Presidency of the European
Council. My services have been drawing attention to industry needs as expressed
in the present report. If Finance Ministers are serious about doing something to
improve the regulatory and tax environment for private equity, here is a
ready-made agenda.

III. Expert group on retail investment funds

The expert group on retail funds (UCITS) identifies regulatory failures or
gaps which are hampering the efficiency of the European industry: lengthy delays
in fund authorisation and notification; absence of a management company
passport; no possibility to merge funds on a cross-border basis or pool assets;
national rules which preclude cross-border delegation of custody functions.

The report makes a powerful case for urgent action to remove these
bottlenecks. This will foster efficiency gains all along the fund value-chain.
It will reduce time to market, harness scale and specialisation benefits and
provide more flexibility for industry players to organise their business on a
pan-European basis. Some efficiency savings will accrue directly to investors:
others will trickle down to the end-user under the benign influence of
competition.

The particular contribution of this report is the detailed explanation of the
need to realise these benefits. Many of the recommendations require revision of
articles of the existing Directive, or the introduction of provisions to give
effect to new enabling mechanisms. In isolated instances, flanking measures
will have to be taken in other fields such as taxation of fund mergers. The
latter in particular poses a daunting challenge.

However, we now have a detailed road-map to help us to implement these ideas.
The onus is on EU authorities and Member States to act quickly on these
recommendations. Yes, this will imply adjustment of regulation and enforcement
practice. Yes, there will be complex technical challenges to be resolved. But,
it is up to us to find the solutions. We have two decades of single market
experience behind us. We have new infrastructures to support cooperation and
build trust and confidence between supervisors. It is time to start trusting
each other and our ability to find solutions to what are – at the end of
the day – 'low-tech' problems.

We want to hear your views on these recommendations. We think their time has
come.

The expert group did not cover all the questions. It focussed essentially on
tackling bottlenecks in portfolio management and fund administration. It has not
focussed on inefficiencies in fund distribution. Distribution costs account for
around 0.9% of assets under management for active equity and capital protected
funds. They exceed all other costs in the fund industry combined. The Commission
has not lost sight of these issues. We have organised workshops – bringing
all stakeholders together - to discuss improvements in standardised fund
disclosures. We will also be looking at how to use new MiFiD rules to ensure
that inducements paid by fund promoters to ensure that products are carried by
distributors do not work to the detriment of the end-investor. These important
issues will also be at the heart of the White Paper agenda.

IV. Next steps

We must now deliver concrete improvements. The three expert group reports
have provided us with valuable input. They explain how the European regulatory
environment is holding back the development of the different businesses. In
clear and constructive terms. The Commission will lay out its policy in the
November White Paper. We look forward to receiving all views on these reports by
September 20th.

I would like to conclude this hearing by thanking the experts, once again,
for their sterling work. And to thank all participants for their interest and
efforts in building a world-beating asset management business.

That is the real challenge: to build the best regulatory framework in the
world. Nothing less.